Labour Party backbencher Clint Azzopardi Flores said that any phasing out of energy subsidies should be agreed upon by both sides of the House of Representatives and must be done in a manner that does not shock the economy.

The PL MP stressed that if the shock incurred by the energy subsidies' phase-out plan is very strong, "then you might as well retain the subsidy as it is so that we can keep growing the economy".

He noted that, at the very least, the blanket energy subsidies contribute to economic stability across the Maltese islands.

In an interview with The Malta Independent on Sunday, Azzopardi Flores - an economist by profession and one of Parliament's new faces as of this year's general election - was asked if the country's energy subsidies are here to stay for much longer and if he has any phase-out plans in mind that he recommends the country to consider heeding.

Firstly, the PL MP stressed that, in his view, "the energy subsidies should be retained to avoid creating economic instability". He argued that every time economic instability arose due to utility prices, there were situations when economic operators performed poorly and the national economy suffered as a result.

Hence, when the time comes to unfreeze energy prices, Azzopardi Flores said, "there must be a holistic plan so that prices do not impact economic operators once the subsidy has been phased out. The moment it is phased out, one must see that there is no shock". In his view, this cut-off date should be presented through a "transition period" so that people can plan their finances ahead of time.

Last February, the Governor of the Central Bank of Malta, Alexander Demarco, told this newsroom that the government's energy subsidies should not be retained forever and that exit strategies are required for the country to phase itself out from them.

To avoid fear of political backlash stopping any party in government from phasing out the energy subsidies, Azzopardi Flores hopes that both sides of the House can reach a bipartisan agreement on when the subsidies should be withdrawn, for example, for both parties to agree to eliminate energy subsidies by the start of 2035.

The MP gave this response after he was asked whether people are right to be concerned that potential political losses could hinder plans to phase out the energy subsidies.

Azzopardi Flores believes that, should such an agreement be drawn up between the PN and PL parliamentary groups, more voters within the electorate will vote following this display of "political maturity".

"People vote for you, shift towards you, if you have political maturity," he said, "Nowadays, people want to see a plan - not populism."

Azzopardi Flores' recommendations for phasing out energy subsidies

The Labour MP pitched two ways to soften Malta's necessity to provide blanket energy subsidies to all, as well as one plan in case they grow unsustainable.

The first phase-out plan MP Azzopardi Flores mentioned was for Malta to invest in renewable energy. He argued that investing in renewable energy would make Malta less reliant on purchasing and importing energy from abroad. This aligns with what Central Bank Governor Alexander Demarco told this newsroom earlier this year.

The rationale is that, at the moment, Malta ranks bottom in the EU for the share of electricity consumed that was generated by renewables, according to Eurostat, with just 10.7% of all energy consumed across the Maltese islands not deriving from fossil fuels. Malta also ranks fourth bottom in the EU for the proportion of its generated energy deriving from renewable sources, at 17.2%. In comparison, 90% of all electricity consumed in Austria was generated from renewables and almost half (47%) of all energy generated in the European Union came from clean sources.

"In the long run, you'd have stable prices, you'd be generating renewable energy, and eventually the costs will remain low," he said.

Azzopardi Flores stated that the new interconnector, IC2 will help reduce energy prices for Malta as well by offering more options on top of what we have today through the existing interconnector, IC1. Essentially, by widening Malta's potential to seek improved energy prices from abroad, this should decrease the gap between present/future energy prices for the State and the price level frozen for households and businesses in 2022, thus decreasing the amount of money forked out by the State for these energy subsidies.

"We'd be able to buy [energy], compare from where to buy, see whether to produce [energy] with LNG, and whether to purchase energy from IC1 or IC2 to optimise prices," he said.

In addition, Azzopardi Flores said that if Malta can no longer sustain energy subsidies at their present state, he proposes implementing an eco-contribution to be paid only by high-earning households. He clarified that "low- and middle-income earners cannot afford to pay eco-contributions, but there are certain situations where high-income earners can afford to pay it".

In this scenario, while he said blanket energy subsidies would be retained, high-income earners would pay an eco-contribution that could be used by the State for other investments, as deemed fit. He defined high-income earners in this example as households whose income is "exorbitant enough" to afford this payment.

"I'm not saying this is a government policy. This is just what I think if we ever reach a point where we cannot sustain it," said the PL MP. "If we ever reach a point where we cannot sustain it, this is something that can be considered; keep the blanket subsidy while collecting something small from those who can truly best afford it to retain economic stability and economic growth while still receiving something and for that to be distributed elsewhere."

Energy subsidies' economic benefit must be considered before removal, he says

The government backbencher said that the energy subsidies must not be viewed in isolation; they should be assessed by considering their economic benefits and identifying precisely where the resulting economic gains are being realised.

"The subsidy cannot be viewed in isolation. You must reason out: if you don't have that subsidy in place, what will be the reduction in economic growth?" said the PL MP.

Since energy subsidies were introduced four years ago, over €1 billion has been spent from public coffers to shield all households and businesses from the soaring energy rates that have sorely affected the rest of Europe. This year alone, the energy subsidies are expected to gross at €230 million - which tallies to around 1% of Malta's GDP.

Stressing the need for energy subsidies to be analysed together with their effects on the national economy, and not just by their costs, he argued that if a 2% decrease in economic growth is observed after cutting out these subsidies, thus saving approximately 1% of Malta's GDP from being funnelled here, then, overall, that would result in worse economic performance.

Azzopardi Flores stated that the government can remain positioned to keep energy prices frozen at 2022 levels should the economy keep growing. Noting that the PL government forecasts 4% annual economic growth till 2031, he observed that around 0.9% of that 4% economic growth could fund energy subsidies for the following year.

Inversely, he added that once the economy begins performing negatively, the government will no longer be in a position to keep providing the energy subsidies.

The Maltese government implemented the energy subsidies in 2022 at the height of the Covid-19 pandemic and as energy prices began to soar as a result of the Russian invasion of Ukraine.